LOSSPR
Measure the probability of loss at throughout an investment horizon (first-passage time) or at the end of horizon.
Description
Probability of loss is a measure of the likelihood that a portfolio will incur a particular percentage of loss at the end of an investment horizon. The function is also able to calculate the within-horizon probability of loss which is estimated as a first-passage time probability.
See https://insights.windhamlabs.com/insights/rethinking-exposure-to-loss for an introduction to stress testing your portfolios and assessing a more realistic measurement of exposure to loss.
Syntax
The following describes the function signature for use in Microsoft Excel's formula bar.
Input(s)
mu
Required. Vector / scalar of portfolio return estimate(s).
sigma
Required. Vector / scalar of portoflio risk estimate(s).
horizon
Required. Investment time horizon in the same time units of mu and sigma.
threshold
Required. Loss threshold to assess likelihoods.
estWithinHorizon
Optional. Logical flag (TRUE or FALSE) to indicate whether you would like to calculate the within-horizon risk measurement. If this argument is not specified, it defaults to false.
Output(s)
Probability of loss estimate(s).
Example
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